Georgia Gov. Brian Kemp speaks at a news conference on August 10, 2020, in Atlanta. Kemp is asking for the emergency declaration for the COVID-19 crisis be lifted on July 1, worrying state officials. (Elijah Nouvelage/Getty Images/TNS)
By James Salzer
Georgia’s economic rebound from COVID-19 produced a record $3.2 billion increase in state tax collections during the recently completed fiscal year as both income and sales soared, according to a new report out Monday.
That will leave the state with a hefty surplus when all its bills are paid for fiscal 2021, which ended June. 30.
That’s opposite of what state officials expected this time last year, when they were cutting spending because the COVID-19 pandemic had flattened Georgia’s economy.
On Monday, Gov. Brian Kemp’s office announced the state had taken in $3.2 billion more in taxes — mostly from rising income and retail sales — during fiscal 2021. The state saw revenue grow 13.5% over 2020.
The surplus has already led to speculation at the Capitol about what the state should do with the money, and that will likely only intensify as Georgia heads into a heated 2022 election season.
But the figures suggest continued strong growth in the economy since last summer as Georgia recovers from the pandemic economic slowdown.
“Thanks to our work alongside the General Assembly to budget conservatively and protect both lives and livelihoods throughout a global pandemic, Georgia remains on solid financial footing,” Kemp said. “The COVID-19 crisis highlighted the importance of states living within their means, and Georgia did so without widespread layoffs, tax hikes, furloughs or drastic cuts to essential services.”
Georgia isn’t the only state seeing rising tax collections right now. Governors across the country are trying to figure out what to do with hefty surpluses and federal COVID-19 relief largesse.
The taxes the state collects help it educate 2 million children, provide health care to more than 2 million Georgians, manage and improve parks, investigate crimes and incarcerate criminals, and regulate insurance firms, utilities and dozens of professions. The state issues driver’s licenses and helps pay for nursing home care for the elderly.
The state is a major provider of treatment for mental health and drug addiction, and it helps fund public health programs that are fighting the pandemic. Besides paying salaries, it helps make sure that hundreds of thousands of former teachers, university staffers and state employees receive pensions and health care.
For the fiscal year, the state’s two major revenue sources — income and sales taxes — were up 14.6% and 12.7%, respectively. Corporate income tax collections rose 42%. Tobacco and liquor tax collections improved 7.7% and 9.7%, respectively.
Meanwhile, hotel/motel fees were off 8.8% as the hospitality industry struggled to recover. Motor fuel taxes were also down, by 4.9%, in part because Kemp suspended the collection of fuel taxes in May after a ransomware attack on Colonial Pipeline brought dry pumps and higher prices for the gas that was available.
Besides the boon in state tax collections, Georgia is also receiving about $4.7 billion or so from the latest federal COVID-19 relief plan.
The General Assembly in June 2020 cut the budget by 10% because it feared tax collections would plummet. That didn’t happen, and Kemp in May signed a new state budget for fiscal 2022, which began July 1, that backfills 60% of the cuts made to education and most state agencies, provides targeted raises and borrows more than $1 billion for construction projects.
Democrats have pushed for the state to use the fiscal 2021 surplus to increase school spending and provide more Georgians with health care coverage.
Danny Kanso, senior policy analyst for the left-leaning Georgia Budget and Policy Institute, said, “While lawmakers should exercise caution due to the highly unusual economic events of the prior year, state leaders have the necessary resources … to immediately reverse cuts to health care services and core state agencies like the Department of Human Services, including the nearly $400 million cut from our state’s public schools, and extend meaningful economic relief to the millions of Georgians who continue to struggle in the wake of the pandemic.”
Kemp will receive pressure from his fellow Republicans to use the money to cut taxes on Georgians. Kemp is up for re-election next year, as are all 236 General Assembly seats, and GOP lawmakers traditionally like to run on tax cuts.
However, because the surplus is a one-time windfall, state officials will be reluctant to approve any ideas that have annual, year-to-year costs attached to them.
Budget writers would like to see the state save the extra money coming in. House Appropriations Chairman Terry England, R-Auburn, remembers having to deeply cut into agency budgets during the Great Recession.
The state can legally fill its savings account to 15% of the previous year’s revenue, meaning the “rainy day” fund could swell from about $2.7 billion to closer to $3.5 billion to $3.8 billion. Officials are looking into socking away even more, if possible.
England also suggested some of the money could be used to fund future health care for retired teachers and state employees. He also raised the possibility of infusing cash into the state’s Employees Retirement System so it can afford cost-of-living raises for 50,000 retirees for the first time since 2008.
None of that is politically sexy. England knows Kemp and lawmakers will be pressured by both Democrats and Republicans to spend at least part of the surplus as Georgia heads into an election year.
“I am probably more anxious today than I was during the Great Recession or this time last year about what we are going to do,” he said.
GEORGIA REVENUE SURGES
Georgia’s revenue grew by 13.5% in fiscal 2021, an increase of $3.2 billion in tax collections over the previous year.
Here’s a breakdown of tax collections the fiscal year that ended June 30:
Income tax — +14.6%
Sales tax — +12.7%
Liquor tax — +9.7%
Tobacco tax — +7.7%
Hotel/motel tax — -8.8%
Motor fuel tax — -4.9%
Read the original story on AJC.com.